Harvard’s Scolopax Scandal and the Need for Responsible Ownership

May 3, 2014
Source
Harvard Political Review

On January 21, the former managing director of the Harvard-owned timber company Scolopax SRL was detained on charges of money laundering and corruption in Romania. According to Romanian prosecutors, Dragoș Lipan Secu and his wife accepted bribes including a Crysler Sebring, a vacation to the Canary Islands, and $1.3 million in exchange for purchasing forest land at an inflated price.

Although Scolopax SRL is entirely owned by Harvard Management Company, this corruption scheme, which took place between 2007 and 2009, was discovered by local whistleblowers. As students and workers of Harvard, we are embarrassed that Harvard does not have a system of accountability in place to ensure even the most rudimentary legal compliance at the companies it owns. Basic responsible ownership policies would help to prevent corruption and unethical behavior at Harvard’s 237 majority-owned companies. The unfortunate events at Scolopax highlight the urgent need to implement responsible ownership at Harvard.

We depend on Harvard’s endowment to fund financial aid, staff and faculty salaries, and the students’ extracurricular and academic lives—but our university should not profit off of injustice, environmental degradation, or cut-rate but inadequate governance. On January 23, we joined 50 students and alumni in emailing Harvard President Drew Faust to demand that Harvard be a more responsible owner of directly-held companies such as Scolopax. President Faust has not responded to these communications. Yet on the same day—coincidentally, according to Harvard spokesman Kevin Galvin—Scolopax issued an “urgent” letter announcing that it intended to sell 32,465 hectares of land in Romania.

As of 2011, Scolopax held approximately 35,000 hectares of Romanian forest and 2,000 of its farmland, which made Harvard the largest private owner of forests in the country. Why was Scolopax so urgently selling nearly all of its land? Galvin stated that “this transaction is part of a process that started in November of 2013, prior to the recent reports in the media.” But could it simply be a coincidence that the sale was announced in an “urgent” notice just two days after a corruption scandal broke? Did Harvard know that Lipan Secu had taken bribes when it initiated this sale?

The Rise Project, a Romanian organization which is a member of the Global Investigative Journalism Network, extensively documented and reported a pattern of corrupt dealings by manager Lipan Secu. Galvin told Bloomberg News that Lipan Secu ended his association with Scolopax in 2012. Yet this seems a moot point in our story: Lipan Secu committed criminal fraud while he was a Harvard manager.

Harvard’s extensive ownership of forestry operations worldwide—unique among universities—began almost 20 years ago. Harvard Management Company, which manages our university’s endowment, started purchasing timberland in the United States in 1997. Under the leadership of Jane Mendillo and Andy Wilshire, HMC has dramatically expanded its investment in overseas timber in the past six years. Today, Harvard lists 237 companies that it owns fully, including Scolopax, on its IRS tax filings. Little public information is available about most of these enterprises.

Buying timber plantations may have seemed like a good investment to Harvard because it would diversify our university’s portfolio. Yet such purchases also require a sustained and deliberate commitment to accountability to ensure that corners are not cut and that legal regulations are not ignored at the local level.

Unfortunately, the Scolopax scandal was not isolated. Last spring, one of Harvard’s fully-owned timber companies in Chile was sued by the Chilean government for destroying native forests. This past fall, a report released by our Coalition and the Oakland Institute revealed that two of Harvard’s timber plantations are endangering the Iberá Wetlands and the livelihoods of farmers in Corrientes, Argentina. These problems reveal a pattern: in moving into timber, Harvard has not set up structures to ensure ethical ownership practices.

Here in Cambridge, Harvard has sustainability principles for reducing greenhouse gas emissions and ensuring responsible environmental management. It generally provides decent wages and benefits for its workers, including contracted workers. Harvard has a comprehensive non-discrimination policy and respects local and national laws. There is no reason that our university should not apply these same standards to companies entirely owned and managed by Harvard.

We are not asking Harvard to immediately divest from all timber plantations. Instead, Harvard must simply ensure that all of its directly-held companies follow its own on-campus standards for legal compliance, environmental practices, labor practices, land rights, non-discrimination policies, and transparency in corporate governance. This means respecting sustainable farming practices, protecting local ecology, and honoring workers’ rights to organize.

Harvard needs to manage all of its investments with these basic ethical principles, instead of making secret deals and doing damage control only after unethical practices are uncovered. While the Responsible Investment at Harvard Coalition has only scratched the surface of investigating Harvard’s extensive global investments, the number of ethical violations that we have uncovered is deeply disturbing. Harvard must set up rigorous and transparent standards for accountability to students, alumni, workers, and faculty. Only with a clear and consistent policy of responsible ownership can Harvard avoid future scandals.